Mortgage restrictions should be imposed on UK homebuyers by the Bank of England to prevent house prices rising for at least the next five years, a prominent left-of-centre thinktank has argued.
In a move designed to end Britain’s reliance on property investment to drive the economy, the the Institute for Public Policy Research (IPPR) said the central bank should be given new powers to target zero house price inflation in the same way it aims to maintain general inflation at around 2%.
The new zero inflation target would mean house prices falling by around 10% in real terms as wages continue to rise, the thinktank said, making homes more affordable.
The IPPR’s call comes as part of a wider plan to rebalance the UK economy away from a traditional reliance on the City and property investment towards science and manufacturing, something Theresa May promised when she became prime minister in 2016.
House prices have continued to grow in the past year despite a steep rise in tax on buy-to-let and second homes, Brexit uncertainty and weak economic growth. Figures from Nationwide building society showed that prices grew by the slowest rate in five years in June, with London remaining the weakest spot, but still managed to rise by 1.9%.
House prices increased tenfold between 1980 and 2008, pushing the average price of a UK home to £215,444, almost eight times the average income.
The discussion paper, On Borrowed Time: Finance and the UK’s current account deficit, calls on the Bank of England’s financial policy committee, with the Treasury’s backing, to insist on higher initial deposits and stricter ceilings on loan to income ratios. An increase in house building would also help to bring down average prices, the IPPR said.Sign up to the daily Business Today email or follow Guardian Business on Twitter at @BusinessDesk
Grace Blakeley, an IPPR research fellow and author of the discussion paper, said the government needed to wean the UK off property speculation and debt as a spur for GDP growth.
She said: “Since the 1980s, the UK’s business model has rested on attracting capital from the rest of the world, which it has channelled into debt for UK consumers. The 2008 crisis proved that this is unsustainable. We need to move towards a more sustainable growth model, one built on production and investment rather than debt and speculation.
“To do this we must break the cycle of ever-rising house prices driving property speculation, crowding out investment in the real economy.”
Source : https://www.msn.com/en-gb/finance/news/bank-of-england-should-aim-to-freeze-house-prices-for-five-years-e2-80-93-report/ar-AAzPn0pThanks you for read my article Bank Of England Should Aim To Freeze House Prices For Five Years – Report